Real estate and construction are regarded as global drivers of economic growth and critical sources of employment.
In western Europe, where slower economic growth and political uncertainty have squeezed transaction volumes and prices, over-weighted ownership of real estate assets is increasingly seen as a risk.
Even in the United States, where the real estate market has continued to perform well, some industry observers are wary of the sector’s long-term prospects. As a result, a significant number of real estate assets have been spun into listed vehicles that allow individual investors access to real estate portfolios without owning underlying assets.
In the UAE, real estate investment trusts (Reits) are increasingly considered an attractive prospect, pooling advantages such as investment diversification and expert investment counsel – normally available only to institutional investors – for individual investors.
Reits, if managed properly, could have the characteristics that local investors appreciate – a steady income, high yields, moderate risk and linked to property.
Despite housing some world-class residential and commercial properties, the UAE’s property market – and Dubai in particular – remains under-resourced in terms of investment grade products. Reits, therefore, could be an attractive prospect for retail investors seeking fresh UAE property opportunities.
The launch of the UAE’s first ever residential Reit, Equitativa’s The Residential Reit, a Sharia-compliant model with a seed portfolio of Dh418 million, was a welcome step for the sector. Then in March, Emirates NBD Asset Management floated a Reit listed on Nasdaq Dubai and raised US$105 million. And, last week, Abu Dhabi Financial Group announced plans to launch the UAE’s third Reit by the year’s end.
Singapore has a much bigger Reit sector. Investors tend to be attracted to Reits by their dividend yields and, according to Bloomberg, Singapore Reits offer average yields of more than 6 per cent. This suggests that, despite slower economic growth, Singapore’s yields have remained relatively strong even as returns on assets have not necessarily been.
A critical factor that accelerated the growth of Reits in Singapore was the introduction of a clear regulatory framework and government support. Reits have strong foundations, which tend to create a conducive environment, promoting their attractiveness among domestic and international investors. Singapore Reits even allow investors to own international property, further diversifying investment portfolios and reducing market contagion risks.
Several countries have expressed great interest in Reits. A number of new Reit regimes have been introduced recently, with India entering the market in 2014. For the UAE’s real estate market, Reits could represent significant growth.
Two key possible drivers – the hedging of risk and portfolio diversification – help to increase appeal for investors. For investors seeking tax-efficient, liquid and transparent vehicles, Reits might be the answer. Buying shares in a Reit makes investors a partial owner of the properties – and a partial owner of an operating business that manages properties for profit.
A further benefit of Reits may be their ability to generate higher income over the longer term. Generally, real estate prices are not correlated with stock prices, therefore, Reits provide diversification. Since Reit shares are traded on stock exchanges, buying and selling is straightforward.
The appeal of Reits is not limited to retail investors. They improve asset owners’ liquidity, broaden the investor base, facilitate equity financing and add value in the underlying real estate investment.
Dubai – and the wider UAE property market – is well placed to reap the benefits of Reits. Dubai’s real estate sector could be on the brink of a significant shift, partly driven by demand for Reits.
Sidharth Mehta is a partner and the head of building, construction and real estate at KPMG Lower Gulf.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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The specs
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Fuel economy, combined: 6.5L/100km
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Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
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Your Guide to the Home
- Level 1 has a valet service if you choose not to park in the basement level. This level houses all the kitchenware, including covetable brand French Bull, along with a wide array of outdoor furnishings, lamps and lighting solutions, textiles like curtains, towels, cushions and bedding, and plenty of other home accessories.
- Level 2 features curated inspiration zones and solutions for bedrooms, living rooms and dining spaces. This is also where you’d go to customise your sofas and beds, and pick and choose from more than a dozen mattress options.
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